Pension Funds Put Money Managers on Notice

July 2, 2002 (PLANSPONSOR.com) - Two large pension
funds have put their investment management firms on notice
that they are expecting greater scrutiny of the auditing and
corporate governance practices of the companies in which
pension fund monies are invested.

In addition, the chief investment officials of North
Carolina and New York were joined by California State
Treasurer Philip Angelides in stating that all investment
banking firms that do business with the states will be
expected to adopt the conflict of interest principles set
forth in the agreement New York State attorney general
Eliot Spitzer reached with Merrill Lynch in May.

New York State Comptroller H. Carl McCall, sole trustee
of his state’s $112 billion pension fund (second largest
state public pension fund in the nation) the and North
Carolina Treasurer Richard Moore, sole trustee of his
state’s $60 billion pension fund (the country’s tenth
largest state public pension plan), made the
announcement.

Angelides manages the Golden State’s $50 billion pooled
money investment account, selects investment banks for $25
billion in state bonds and debt, and is a member of the
governing boards for the California Public Employees’
Retirement System (CalPERS) and the California State
Teachers’ Retirement System (CalSTRS).

The state officials said they would urge other public
and private pension funds to adopt the same principles.

McCall and Moore said they would require that investment
banks and money management firms that do business with the
New York and North Carolina pension funds follow guidelines
that go beyond the Merrill Lynch principles.

According to BNA, the additional principles for
financial firms doing business with the pension funds
must:

consider “the quality and integrity of the subject
company’s accounting and financial data” and the
corporate governance policies and practices of the
company, when investing pension dollars

disclose any client relationship they have, including
management of corporate 401(k) plans, with a company in
which they might invest pension funds

annually disclose the manner in which they compensate
their portfolio managers and research analysts

report quarterly the amount of commissions paid to
broker-dealers and the amount paid to those that have
adopted the Merrill Lynch principles

adopt safeguards to ensure that client relationships
of affiliates do not influence investment decisions,
where applicable.

In addition, firms will be required to create a review
committee to approve research recommendations, establish a
monitoring process to ensure compliance with the
principles, and disclose in research reports whether the
company has received any compensation from the covered
company over the previous 12 months.